Is China's rise unstoppable?

 
Chinese builder

A clear majority of Brits, Germans, Spaniards, Canadians, French people, Poles, Australians and South Koreans believe China will supplant America as the world's leading superpower (and quite a few of those think it's already happened).

However, for all the African land and minerals that China has gobbled up, only a minority of Africans believe China will become more powerful, in a political and economic sense, than the US.

And there is similar scepticism about the sustainability of China's rise in much of the middle east and parts of South America.

As for Russians, well they are split down the middle - which may tell you something about Russia's complicated and uneasy historical relationship with both the US and China.

These are among the intriguing results of a poll conducted by Pew Research of almost 38,000 people in 39 countries between March and May this year.

And when it comes to the economic aspect of power, there are some equally striking results.

For example, 44% of Americans named China as the world's most powerful economy, rather more than the 39% who picked out the US as No 1 in this narrower sense.

And a clear majority in the UK, Germany, France, Spain, the Czech Republic and Australia describe China as "the world's leading economic power".

So who is right - the Europeans who already doff their caps at China's might, or the Africans who see the Chinese buying up their assets but are doubtful that America will ever be knocked off the apex of power?

Well right now, and as I implied last month, African mild scepticism about the seemingly unstoppable rise of China looks quite smart.

For two reasons: there is a gentle economic recovery taking hold in the US, that could and should accelerate.

But more germanely, and as I've said before, there are reasons to believe that China's much more rapid growth could slow down sharply and even judder to a halt.

That kind of hard landing (to use the ghastly economists' cliche) is not what the International Monetary Fund (IMF) said it expects in its so-called Article IV consultation on the People's Republic of China.

The IMF still expects China's economy to expand 7.75% this year - although it acknowledges downside risks.

What is striking is that IMF data confirms earlier unofficial estimates of the rapid - and many would say dangerous - pace of lending since the global financial crisis of 2008.

In four years, what the IMF calls "social financing" - loans that aren't on the government's official balance sheet, so more or less what we would call private sector lending - rose by more than 70% of Chinese GDP to almost 200% of GDP in total.

And big contributors to this credit explosion were relatively unregulated "shadow banks", which makes it more likely that corners were cut when the lenders assessed whether the borrowers would ever be able to repay.

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There are no examples in history that I can find where this kind of boom hasn't ultimately led to a crash”

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To put this into some kind of context, the IMF also shows that net domestic credit in China as a percentage of GDP is high for a country with its relatively low GDP per head.

So its private sector indebtedness is higher than in the US and Germany - where income per head is between eight and nine times greater.

Chinese indebtedness is much higher than for other fast-growing economies, such as Malaysia, Vietnam, Brazil, Russia and India.

Which implies that in recent years China became too dependent on credit-fuelled growth.

And there has been evidence that China's government and central bank have recognised that this lending binge has become dangerous, and is taking steps to curb it.

But if in a low growth world, if credit creation in China is no longer going to generate growth, what will?

Of course, China's credit boom has been very different from what undermined the foundations of our economy in the binge years before the 2008 crash.

In our case, it was households that borrowed too much.

The structural flaw in China's economy has been a surge in credit-fuelled investment of unprecedented proportions.

Again, as IMF data shows, investment represents almost 50% of GDP, massively more than any developed or developing economy. There are no examples in history that I can find where this kind of boom hasn't ultimately led to a crash - although it is never possible to scientifically predict the timing of the reckoning.

What China needs to do (to state the blinkin' obvious) is to boost consumption - which is also at record lows as a share of GDP compared with both advanced economies and emerging ones.

Managing that shift from excessive investment to sustainable consumption in China represents one of the economic challenges of our age - and, since China has recently been the world's engine of growth, it matters almost as much to us as it does to the Chinese.

 
Robert Peston, economics editor Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    -5

    Comment number 49.

    The media keeps pumping the line that China will supplant the US as a superpower - this is unlikely, as China is constrained by its authoritarian regime, corruption, and lack of personal freedoms.

    India - should it ever get the politicians it deserves - has the genuine foundation to be a superpower - democratic; open society; rule of law; personal freedom; a diversified economy.

  • rate this
    -6

    Comment number 48.

    only a minority of Africans believe China will become more powerful, in a political and economic sense, than the US.

    it will be sub saharan africa at the top in about 50 years when 1/2 the worlds population lives there.
    in 2050 the global economy be:the west(1.5b people), africa(3.5b), india+(indo,malay,bang,..)(2b),china +(viet,hong,tiw..)(1.2b),latin america(0.75b) and the middle east(1b)

    .

  • rate this
    -1

    Comment number 47.

    #1 in overall GDP for a while perhaps. However, demographics and polution will curtail its rise.
    It will not be a world-leading innovator. Anyone who has lived there will know that plaguirism and counterfeiting of absolutely everything, corruption and dishonesty is the order of the day.
    The country is still also suffering from the social consquences of the Cultural Revolution.

  • rate this
    -1

    Comment number 46.

    In the true communist view of "some are more equal than others", China is living up to itself. Strife with corruption from political, corporate, banking, all the way down to street level, the Chinese system will inevitably become more of a mess as they move forward. Because there is no standard cohesion, at the first sign of decline people will bail. Effective management is just not there.

  • rate this
    +1

    Comment number 45.

    34. Friendlycard
    Knut Largerson
    "Actually, Bismarck was sunk by her designers"

    Yeah up to a point.

    The Royal Navy might see things differently, but I'd agree low speed and steering problems allowed us to catch and destroy the ship.

    To be a World power China needs a Bigger Navy, otherwise it'll remain 2nd Rate like Russia.

  • rate this
    +2

    Comment number 44.

    China probably will become the leading world economy for a while, until it faces huge social problems comparable to (though different from) America's now. But I see no prospect of it overtaking America in military power or technical innovation. Don't underestimate the USA, which compared to China is much more adaptable and able to re-invent itself.

  • rate this
    +7

    Comment number 43.

    @41:
    "Think oil" or maybe don't...
    China leads world in green energy investment
    http://www.bbc.co.uk/news/business-14201939

  • rate this
    +1

    Comment number 42.

    The government controls China unlike the governments in the Western world and so you cannot compare the future outcome to past history of the western world.

    I dont see why credit fuelled investment is a structural flaw if you borrow money and get more money back than you borrow including interest unless you fail to do that then it wasnt an investment.

  • rate this
    -1

    Comment number 41.

    .
    Robert. You have missed something:

    Any world power needs oil. And plenty of it.
    Has China got any reasonable quantity?

    No.

    So it needs to beg borrow or steal it.
    It needs to secure sea routes.
    It needs to build aircraft carriers.

    Resources are the key thing that China needs.
    Currently it has some but not all it needs.


    The number 1 as always is oil.

    Re-write your article. Think oil.

  • rate this
    +1

    Comment number 40.

    Over the next 10 years China will face huge internal problems as the people demand their return from the status their country now has.

    The biggest problem they face is keeping a grip on the banking sector who will be doing their best to extract as much from the system as they can.At the moment they have the protection of the Government it will be interesting to see how long that can last.

  • rate this
    -8

    Comment number 39.

    ref #31

    One of many Obama's mistakes was cutting back the space program. We missed a golden oppurtunity by not electing Romney a much wiser, acompluished and honest man than Obama. But too many voters were conned a second time

  • rate this
    +6

    Comment number 38.

    At least the Chinese don't have to make do with unkempt Victorian-era infrastructure.

  • rate this
    +1

    Comment number 37.

    Who cares if China will be the worlds' next master race?
    We've already had our turn besides its still a few years off yet so hopefully we'll all be dead by then.

  • rate this
    +3

    Comment number 36.

    China's system has all the disadvantages of communism: the murder/execution of political prisoners, censorship, the "great firewall of China". But it also has all the disadvantages of a capitalist system: its an incredibly unequal society where all the development is concentrated on one region; in other parts of the country people are mostly peasants.

  • rate this
    +7

    Comment number 35.

    There seem to be two types of people posting here; those that have been to China and seen what they are doing there and those who have not. The Chinese are no more dependant on foreign know how than the Japanese are. They are, as a nation, religious in learning how something works.

    My children are learning Mandarin, its an obvious choice given English as a first language.

  • rate this
    +1

    Comment number 34.

    24.
    Knut Largerson

    Actually, Bismarck was sunk by her designers - comms circuits above the armoured deck, 3 props (with 2 or 4 you can steer without a rudder), and so on. She took hours to sink, but was finished as a fighting unit in 15 minutes. Oscar the cat saw out his days in a sailors' rest home in Northern Ireland. On Ark he was not popular with a carrier;'s traditional pets - canaries.

  • rate this
    0

    Comment number 33.

    China will never make the grade. Its growth has been almost entirely due to foreign capital, foreign technology and foreign know-how. The US has not covered itself in glory in the world over the past decade, but it has at least law and ethical components in its government and foreign policy. Chinese do not respect the rule of law and they bring the stench of greed and corruption wherever they go.

  • rate this
    +7

    Comment number 32.

    Spend some time in China then some in the US and see which you believe is likely to be No.1 in 20 years...and it's not the US.

  • rate this
    -2

    Comment number 31.

    This is a huge country with massive growth and room to grow. Its an ecomonic superpower and yes the Americans had better be worried.
    They have a real space program with an ambition to go back to the moon. These people will become unstopable in the near future. The yuan may even replace the dollar if the US keep debasing there currency then its game over for the west.

  • rate this
    +2

    Comment number 30.

    will r peston still be employed next year?
    hope not, the man still appears to understand very little, and no-one else would pay him the over-inflated pay he gets from the bbc.

 

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